Assignment: Financial Statement Analysis
A. Organizational Context
1. What key goods or services does your organization provide, and for whom, where, and why? How do these features of the organization (e.g., major products or services, customers, location) help set the boundaries for business decisions? The starting point for much of this question will be your company choice paper.
2. How is the company organized and managed (by product groups, geographic region, function, etc.)? How does that affect accounting and financial information and subsequent business decisions? Again, the starting point for this will be your company choice paper.
B. Recent Financial Performance
1. Assess what the organization's consolidated income statements for the last three years say about its financial performance. Use relevant indicators, graphs, and spreadsheets to support your narrative. (graphs are not necessary but any needed tables should be included in the body of Word document with spreadsheet appendix if needed, that shows your calculations.) For example, what do the amounts and year-to-year changes in revenue, operating income, net profit or loss, and earnings before interest, taxes, depreciation, and amortization tell you? Do any items stand out? Here you might talk about % change, etc.
2. Assess what the organization's consolidated cash flow statements for the same time period say about its financial performance. Use relevant indicators, and tables in the body of your word document to support your narrative. For example, what do the amounts and year-to-year changes in cash from operating activities, cash from investing, cash from financing, and total cash flow tell you? Do any items stand out? I would suggest including here a 5 line table with 3 columns of numbers that shows for each year (column), total operating cash flow, total investing cash flow total financing cash flow, currency translation adjustment, net cash flow for the year. Then talk about how healthy cash flow is, major changes, and significant items in each of the 3 categories (operating, investing, financing).
3. Assess the organization's underlying financial performance. Support your answer with the analysis above and relevant research. For example, is recent performance substantially affected by unusual events such as a major acquisition or spin-off? Is the business thriving or struggling in its industry? How do you know? Here you might refer back to how your company compared to the industry averages you researched for the ratio spreadsheet assignment, and use to help determine how healthy your company is. Be sure to cite relevant ratios (to your discussion) and those numbers. C. Current Financial Health
1. Assess how the organization is capitalized (remember assets = liabilities + equity, how is your company structured more by stock or more by debt? Is most of the equity capital in the form of retained earnings? Keep in mind the effects of treasury stock here) and what that tells you about its financial health. Support your response with relevant tables and indicators such as cash and cash equivalents, total debt, shareholders' equity, current ratio, debt/equity ratio, and days sales outstanding (DSO). For example, does the organization have enough cash for payroll and other bills? Does it have the right mix of debt versus equity (stock)? How do you know? Remember that you calculated many of these ratios in your ratio assignment. Cite relevant ratios, trends in these ratios, and how they differ from the industry. Keep in mind too that the industry might not be healthy at the present time.
2. Does the organization have the right amount of cash and other resources (key people, technologies, reputation, physical assets, etc.) to fuel future growth? What does this suggest for business decisions? For example, if it has too much cash, should it pay a large dividend, repurchase its own shares, or reinvest the excess funds? Here, look at the cash balances. Are they excessive? Does the organization have sufficient plant assets? Does it invest in research to keep it at the forefront of its market? Does it have strong trademarks, trade names, and market share?
3. Assess the financial value of the company using relevant indicators. What does your assessment imply for future business health and performance? For example, what is the business's current market value (number of shares outstanding * current or year end market price)? What is its price-to-earnings ratio (go back to ratio spreadsheet, how does this compare to industry?)? What do these suggest about investor perceptions of the business's future?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.